CURRENCY AND BANKING IN THE UNITED STATES.

THAT which has preceded will have prepared the way to an intelligible discussion of the financial and monetary systems of the United States. It was useless to undertake any thing of the kind till the whole subject of money had been reconsidered, its laws determined, and applied to every proposition which the ingenuity of the Economists could suggest. Till then, any isolated essay, or statement of principles, without detailing the process by which they were reached, would have only added to the confusion which prevailed. Every proposition to be found in the books in reference to money, especially paper money, is exactly opposed to the fact. Although all writers upon it agree in the main, it is always with some qualification, in order to show some degree of independence and originality; so that error itself takes a thousand different shapes. The debates in Congress are simply the roar of chaos. The laws of paper money have, it is believed, been placed, in what has preceded, upon impregnable foundations; and their application made palpable to the most ordinary understanding. We can now see exactly where we stand, and correctly estimate the nature and effect of our circulation, and the methods or steps to be taken to relieve ourselves of it, and to provide one which, by being capital, or the representative of capital, will promote in the highest possible degree, the welfare of the nation. As our present legal-tender currency is the second one of the kind, for the existing government is to be considered only as a continuation and part of that instituted at the outbreak of the War of Independence, it becomes important to give a brief sketch of the first, in illustration of the reasons for the issue of the second, and of the influence exerted by it upon the operations of government, as well as upon those of production and trade.

Our government as first organized was vested in a Congress, or body of delegates, representing the thirteen original States. As it did not spring directly from the people, it lacked that representative character considered under our own system. as well as that of England as indispensable to the exercise of the right or power of taxation. It could make requisitions upon the States, but was utterly powerless to enforce them. The latter still remained independent communities, united in a voluntary confederation for the prosecution of the war. As the central Government, as the chief Executive, was compelled to act at once in reference to the necessities imposed upon it, it must itself provide the means as best it could. Without the power of taxation, the mode obviously suggesting itself was an issue of notes to serve as money. All the colonies, in similar necessities, had issued greater or less amounts of such notes; although, for some time preceding the outbreak of the war, they had been greatly reduced, not only from a general sense of their mischievous effect, but from an Act of Parliament forbidding their continued issue. Though the results of their issue had, without exception, been most disastrous, yet there is nothing in which a community so soon forgets the lessons of the past. The first effect of paper money always seems beneficent; for it always creates activity in all the departments of industry and trade, in ratio to its amount. If this be small, it will for a considerable time circulate at only a very slight discount, from the use that can be made of it by indebted parties, for whom it will have the value of gold. Its issue, therefore, in the outset is always welcome to the great mass; as in the present enjoyment and satisfaction, both past and future are alike forgotten; or, if some uneasiness and apprehension be felt, they are quieted by the assumption that the amount will be small, and that whatever may be issued will speedily be taken in.

The first Continental Congress assembled on the 10th of May, 1775. On the 30th of that month, the colony of New York, through its delegates, submitted that as from the inability of the National and State Governments to raise money, either by loans or taxation, notes of one or the other, to serve as money, would have to be resorted to, they should be issued by the General Government, from the greater credit that would be

attached to them, representing, as they would, the whole country; the greater ease and certainty with which their amount could be regulated; and the wider circulation which could be secured. It was also urged that as the State of New York would, from its central position, be that in which a large proportion of expenditures would be made, unless the notes were issued by the central Government, that State would soon be flooded with those of other States, upon whose issues there would be no check, and for which there would be no sufficient vent, greatly to the public detriment. If notes were to be issued, the reasons urged by the New York delegates appeared to have more force than they really deserved, as the provisional Government might cease at any moment to exist, while those of the States would, in any event, be continued. Their representations, however, prevailed; and on the 22d of June, 1775, an issue of $3,000,000 was authorized to be made as occasion required. Such was the beginning of the Continental money, -as humble and insignificant, in the outset, as the Genie of the Arabian Tales, whom a small bottle at first sufficed to hold, but who, freed from its imprisonment, swelled into proportions so vast as to enfold both sea and land. But the Genie could contract as well as expand. In a freak of vanity, to show his power, he crept back again into his bottle, which the fisherman who had unwittingly set him free instantly closed, and so escaped with his life. Here the parallel ends: for the Genie of the printing press, from an equally insignificant beginning, swelled into proportions still vaster than those of his prototype, which no power, not even his own, could reduce; and could be got rid of only by his death, but not till a whole nation was very nearly brought to the same desperate pass.

The following is a copy of the notes first issued:

"This bill entitles the bearer to receive" (from one to twenty) "Spanish milled dollars, or the value thereof in gold or silver, according to the resolution of the Congress held at Philadelphia on the 10th day of May, a. D. 1775.”

The first issue of notes was apportioned among the several States in ratio to their population, as their proper quota to the expenses of government, which were, in theory at least, to be borne by them by virtue of their power of taxation,—a power

which the central Government did not possess. The notes issued were to be returned for cancellation to the latter, in ratio to the amount received, in four annual instalments, - the first one to be paid before the last day of November, 1779; and the last, on or before the last day of November, 1782. The smallness of their amount, and the provision made for their repayment, show how little was foreseen of the long and dreary struggle upon which the country had already entered.1 No sooner had these issues been made, than the States made the notes their own. The first one to act was Rhode Island, which declared every person who refused to take them to be a public enemy. Other States followed with laws to a similar effect.

On the 29th day of November, 1775, a second issue of $3,000,000 was authorized, with similar provisions for their retirement as for that of the first. This issue was strongly opposed by Franklin, who urged that an attempt should be made to borrow back the notes first issued. He had also urged that all the notes should bear interest. Neither of his recommendations prevailed.

The necessities of the government still continuing, a third issue of $4,000,000 was made on Feb. 17, 1776. Before the

close of 1775, however, and when only $6,000,000 of notes had been authorized, an unwillingness to take them began to show itself. The first hesitation appeared among the Quakers, not from any alleged want of their value, but from conscien

Georgia was not included in the apportionment, as she was not represented

in Congress.

tious scruples which forbade them to take, even indirectly, any part in war. The real cause was undoubtedly distrust, as they afterwards showed no hesitation in taking them at their market value. The year closed disastrously for the American cause. Canada was lost: public confidence was no little shaken. Rumors constantly reached Congress of an unwillingness to receive its notes; in consequence of which, on the 11th of January, 1776, only a little more than six months after the first issue, and only a little more than three after they got into circulation, it put forth the following preamble and resolution:

"Whereas, It appears to this Congress that several evil-disposed persons, in order to obstruct and defeat the efforts of the United Colonies in defence of their just rights, have attempted to depreciate the bills of credit emitted by the authority of this Congress,

"Resolved, Therefore, that any person who shall hereafter be so lost to all virtue and regard for his country as to refuse to receive said bills in payment, or obstruct and discourage the currency or circulation thereof, and shall be duly convicted by the committee of the city, county, or district, or, in case of appeal from their decision, by the Assembly, convention, council, or committee of safety of the Colony where he shall reside, such person shall be deemed, published, and treated as an enemy of his country, and precluded from all trade or intercourse with the inhabitants of these Colonies." 1

The States did their best to sustain the action of the general government. They denounced all recusants, and remitted them for punishment to committees of safety, which in many

1 Would it not have been well for the Economists, who assert that the only cause of the depreciation of government notes is their excess of issue, to explain the cause of the early decline in value of the Continental money? Evidences of such decline in value manifested themselves by the time that only a little more than $3,000,000 had got into circulation, the issue authorized Nov. 29, 1775, not being actually made until after the close of that year. The coin in circulation at the outbreak of the war was variously estimated as from $12,000,000 to $30,000,000. Considering the largely increased expenditures of government, an addition to the currency of $6,000,000 of notes could certainly not be regarded as excessive, if that kind of money were to be resorted to. Professor Fawcett assumes that a country engaged in war may issue, in addition to the currency in circulation, its own notes to serve as money, in ratio to its increased expenditures without affecting prices, or what is the same thing, without causing a deprecia. tion of their value. Is it not astonishing that the Economists should have gone on repeating Adam Smith for a century, without once stopping to interrogate history, or to investigate the conditions upon which the value of all currencies must rest?